5b. Common credit challenges
5c. The importance of checking your credit
5d. Using letters of explanation
5e. How to build a good credit history
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Common Credit Challenges Buyers May Face
Buyers that want to consider the purchase of HUD homes may face various credit challenges. In some cases, buyers may have negative marks on their credit report or a low credit score due to financial hardship and extenuating circumstances. Events beyond the control of the buyer, such as death, divorce, unemployment and medical problems can result in credit challenges that leave buyers fearing they will never qualify to purchase a home.
When considering the purchase of government foreclosures, buyers need to understand that FHA underwriters consider human circumstances. In this case, buyers may be able to secure the financing they need by providing lenders with a Letter of Explanation (explained further in the chapter) that explains the problems on the credit report.
Another common credit challenge that many buyers face is credit report errors. Often errors are present on the buyer’s credit report and those errors may negatively affect their credit. To deal with this challenge, buyers can address errors with the credit reporting agency to have errors removed from their credit report.
Last, some buyers have the challenge of no credit, which may be an obstacle to obtaining the financing needed to purchase HUD homes. While this may be a challenge, solutions are available to potential buyers that want to work on establishing their credit history. Often buyers are already making payments that may help them to show lenders that they are ready to handle the financial obligation that comes with taking out a mortgage on a home.